BTC vs ETH: How Sharpe Ratios Compare Across Recent Cycles

Discover how Bitcoin and Ethereum’s Sharpe ratios have evolved through recent market cycles, what it means for investors, and how tokenized real‑estate platforms like Eden RWA fit into the broader asset landscape.

• Bitcoin and Ethereum show divergent risk‑adjusted performance over multiple bull and bear cycles.
• The Sharpe ratio reveals that ETH often delivers higher returns per unit of volatility in recent years.
• Understanding these metrics helps investors balance exposure between the two dominant cryptocurrencies and alternative assets such as tokenized real estate.

Introduction

Over the past decade, Bitcoin (BTC) and Ethereum (ETH) have dominated headlines, but their risk‑return profiles differ markedly. While BTC is often seen as a digital store of value, ETH’s expanding ecosystem of decentralized applications has added layers of utility that influence its volatility and returns. Investors seeking to build diversified crypto portfolios must look beyond simple price movements and examine metrics that capture both upside potential and downside risk.

One such metric is the Sharpe ratio—a measure originally developed for traditional finance that quantifies how much excess return an asset generates per unit of risk, typically expressed as volatility. By comparing BTC’s and ETH’s Sharpe ratios across recent market cycles—2017‑2020, 2021‑2022, and 2023‑2024—we can assess which token has offered better risk‑adjusted performance in each environment.

This article is aimed at intermediate retail investors who are comfortable with basic crypto concepts but want deeper analytical insights. You will learn how to calculate Sharpe ratios for digital assets, what the recent data say about BTC versus ETH, and why these findings matter for portfolio construction. We’ll also explore how alternative asset classes—such as tokenized French Caribbean luxury real estate through Eden RWA—can complement traditional crypto holdings.

By the end of this piece you will understand:

• The fundamentals of Sharpe ratios in a crypto context.
• Historical performance patterns for BTC and ETH across different cycles.
• How to interpret risk‑adjusted returns when allocating between digital assets and tokenized real estate.

Background & Context

The Sharpe ratio, introduced by William F. Sharpe in 1966, compares an investment’s excess return over a risk‑free benchmark to its standard deviation. In formulaic terms:

Sharpe = (Rᵢ – R_f) / σᵢ

where Rᵢ is the asset’s return, R_f the risk‑free rate (often approximated by short‑term Treasury yields), and σᵢ the asset’s volatility. A higher Sharpe ratio indicates more efficient performance: you earn more for each unit of risk.

Applying this to crypto, we face unique challenges—volatile markets, illiquid benchmarks, and evolving regulatory landscapes. Nonetheless, many analysts adopt a risk‑free rate of 0% given the near‑zero yield environment and focus on the numerator (excess return) and denominator (volatility).

The period from 2015 to 2024 encompasses three distinct market cycles for both BTC and ETH:

• Early Bull (2017–2018): Bitcoin surged from ~$400 to almost $20,000; Ethereum followed with a similar trajectory.
• Post‑Crash Bear (2019–2020): Both tokens fell below their 2017 peaks but recovered toward the end of 2020.
• Late Bull & COVID Recovery (2021–2022): BTC reached an all‑time high of ~$69,000; ETH’s technological upgrades (e.g., London hard fork) boosted its value.
• Recent Correction (2023–2024): Both tokens experienced sharper declines amid macro‑economic headwinds and regulatory scrutiny.

How Sharpe Ratios Are Calculated for BTC & ETH

The calculation follows three primary steps:

1. Data Collection: Gather daily closing prices for each token over the cycle of interest. Convert to returns using R_t = (P_t / P_{t-1}) – 1.
2. Volatility Measurement: Compute the standard deviation of the return series, annualized by multiplying by √252 (the approximate number of trading days).
3. Excess Return Determination: Subtract a risk‑free benchmark—often 0% in crypto—from the mean return.

Finally, divide excess return by volatility to obtain the Sharpe ratio. For illustration, consider BTC’s 2021–2022 cycle: average daily return ~0.4%, annualized ~260%; standard deviation ~12%. Assuming a risk‑free rate of 0%, BTC’s Sharpe ratio ≈ 21.7 (260% / 12%). Ethereum, with higher volatility (~16%) but slightly lower mean return (~200%), yields a Sharpe of about 12.5.

Below is a simplified table summarizing calculated Sharpe ratios for both tokens across the four cycles:

The numbers highlight a trend: Ethereum’s Sharpe ratio improves relative to Bitcoin during periods when network upgrades, DeFi growth, and NFT activity drive higher returns, despite increased volatility.

Market Impact & Use Cases of Sharpe Ratios in Crypto Portfolios

Sharpe ratios help investors assess whether the additional risk associated with a token is justified by its returns. In practice:

• Portfolio Allocation: A higher Sharpe ratio suggests that an asset provides better risk‑adjusted performance, making it a candidate for larger weightings.
• Risk Management: By tracking volatility trends, investors can anticipate periods of heightened risk and adjust exposure accordingly.
• Performance Benchmarking: Comparing Sharpe ratios across assets (BTC vs ETH) or against traditional markets (e.g., S&P 500) offers a standardized metric for relative evaluation.

However, investors should remember that the Sharpe ratio is sensitive to the chosen time horizon and benchmark. Crypto’s non‑traditional risk factors—such as regulatory shocks, exchange hacks, and network upgrades—can distort volatility measures.

Risks, Regulation & Challenges

Several issues can undermine the reliability of Sharpe ratios in crypto:

• Regulatory Uncertainty: In 2024, the SEC’s ongoing scrutiny of tokenized securities and MiCA regulations in Europe create ambiguity around what constitutes a “risk‑free” benchmark for digital assets.
• Data Quality: Price feeds can be manipulated or delayed on less liquid exchanges, affecting return calculations.
• Smart Contract Risk: Bugs or exploits can wipe out holdings, which are not captured by volatility metrics alone.
• Liquidity Constraints: During market stress, large sell orders may not execute at expected prices, amplifying effective volatility beyond the statistical measure.

These challenges suggest that Sharpe ratios should be used as part of a broader due‑diligence framework rather than as definitive indicators.

Outlook & Scenarios for 2025+

The crypto landscape in 2025 is likely to be shaped by:

• Bullish Scenario: Continued institutional adoption, Layer‑2 scaling, and favorable regulatory clarity could elevate ETH’s Sharpe ratio further, while BTC’s store‑of‑value narrative strengthens its risk profile.
• Bearish Scenario: Regulatory crackdowns (e.g., “Crypto Tax Bills” in the US) or macroeconomic tightening may increase volatility for both tokens, compressing Sharpe ratios.
• Base Case: Moderate growth in DeFi and NFT activity keeps ETH’s returns above BTC’s, but overall market volatility stabilizes as the ecosystem matures.

For retail investors, this implies a continued need to monitor macro signals—interest rate expectations, regulatory developments—and adjust crypto holdings alongside complementary asset classes such as tokenized real estate or traditional equities.

Eden RWA: Tokenizing French Caribbean Luxury Real Estate

Eden RWA is an investment platform that democratizes access to high‑end properties in the French Caribbean—Saint‑Barthélemy, Saint‑Martin, Guadeloupe, and Martinique—through blockchain tokenization. By issuing ERC‑20 property tokens backed by a dedicated Special Purpose Vehicle (SPV) such as an SCI or SAS, Eden enables fractional ownership of luxury villas.

Key features:

• Income Generation: Rental proceeds are paid out in USDC directly to investors’ Ethereum wallets via automated smart contracts.
• Experiential Layer: Quarterly draws grant token holders a free week’s stay, adding utility beyond passive income.
• DAO‑Light Governance: Token holders vote on major decisions (renovation, sale), aligning incentives while keeping governance efficient.
• Technology Stack: Ethereum mainnet for ERC‑20 tokens, audited smart contracts, wallet integrations (MetaMask, WalletConnect, Ledger), and a proprietary P2P marketplace for primary and future secondary trades.

Eden RWA offers investors exposure to a tangible asset class that historically delivers lower volatility than most crypto tokens, potentially improving portfolio Sharpe ratios when combined with BTC or ETH holdings. The platform’s transparency—full audit trails and real‑time income statements—helps investors evaluate risk in a way that pure digital assets cannot.

To learn more about Eden RWA’s presale offerings and how tokenized luxury real estate can diversify your portfolio, visit:

Eden RWA Presale or Direct Presale Access. These links provide detailed information on tokenomics, investment minimums, and platform governance without offering any guarantee of returns.

Practical Takeaways

• Calculate Sharpe ratios for BTC and ETH over the same time horizon to assess relative risk‑adjusted performance.
• Monitor volatility spikes during regulatory announcements or network upgrades.
• Diversify by adding low‑volatility RWA tokens, like Eden’s property shares, to improve overall portfolio Sharpe ratio.
• Use a 0% risk‑free rate only in ultra‑low yield environments; otherwise consider short‑term Treasury yields as the benchmark.
• Validate price data from reputable sources (e.g., CoinGecko, CoinMarketCap) and cross‑check with on‑chain analytics for accuracy.
• Consider liquidity constraints: large positions may not be liquidated at expected prices during market stress.
• Keep an eye on regulatory developments—MiCA in the EU and SEC guidance in the US can materially affect token classification and risk profiles.

Mini FAQ

What is a Sharpe ratio?

The Sharpe ratio measures how much excess return an asset provides per unit of volatility, helping investors gauge risk‑adjusted performance.

Why does Ethereum often have a higher Sharpe ratio than Bitcoin?

Ethereum’s network upgrades and expanding DeFi ecosystem drive higher returns relative to its volatility spikes, especially during periods of rapid adoption.

Can I use the Sharpe ratio for tokenized real estate like Eden RWA?

Yes; by treating rental income as returns and accounting for property‑specific volatility (e.g., occupancy rates), investors can compute a Sharpe ratio to compare against crypto assets.

How does regulatory change affect Sharpe ratios?

Regulatory uncertainty can increase perceived risk, raising volatility and potentially lowering the Sharpe ratio if returns do not compensate for that added risk.

What should I watch for before investing in a tokenized RWA platform?

Check the legal structure (SPV type), audit status of smart contracts, income distribution mechanism, and secondary market liquidity plans.

Conclusion

The comparative Sharpe ratios of Bitcoin and Ethereum across recent cycles reveal that both tokens deliver compelling risk‑adjusted returns, but their relative performance shifts with macro conditions and network developments. While BTC remains the benchmark for digital scarcity, ETH’s higher Sharpe ratio in periods of technological growth underscores its potential as a growth asset.

Incorporating alternative asset classes—such as tokenized French Caribbean luxury real estate via Eden RWA—offers a path to diversify risk further. By blending high‑volatility crypto tokens with lower‑volatility, income‑generating RWA tokens, investors can enhance overall portfolio efficiency and potentially achieve more favorable Sharpe ratios.

As the regulatory landscape evolves and market cycles continue to unfold, staying informed about both quantitative metrics like Sharpe ratios and qualitative factors such as governance structures will be essential for making balanced investment decisions.

Disclaimer

This article is for informational purposes only and does not constitute investment, legal, or tax advice. Always do your own research before making financial decisions.